Ann: Graphmada Graphite mine Operational Update, page-81

Hi Dr F

Regarding the issue of whether BSM should have issued a further $1 million of shares at 1.1 cps after completion of its $5 million funding for exploration, completion of the 6 k pa expansion, working capital and admin costs, the company said it did so because of the strong demand for scrip. Frazer, Stevo and Lohranano Lad have said that as the funds weren't needed immediately, the people receiving these shares were getting a benefit not shared with the rest of the BSM owners and so their interests were being diluted.

You have stated that BSM needs to keep sweet with major backers, that we should take on cash when we can because we may not be able to when we need it, that exploration drilling is expensive and that this behaviour is not uncommon with small cap companies - so as we can't do anything about it we have to suck it up.  You've given the example of AVZ's recent issue of $15 mill at 7c and the SP rising over the following two and a half months to 23c.

It's worth looking at AVZ to get a better understanding of how our financing should have been arranged. The example you've given isn't relevant, in my view, because it refers to the next stage of the exploration and field development program - to prove up reserves that have been indicated by preliminary drilling.

Let's look at what happened with AVZ before the most recent issue to the time comparable with where we are now at BSM. In February this year AVZ raised $2.5 mill in two tranches paid in Feb and May for exploration drilling and admin for the next nine months or so. The CR was at 2c, SP then 2.9c.

In the June and Sept Quarters, AVZ completed seven diamond drill holes yielding 1.6% Li2O. Their expenditure, per the Quarterly cash flow report, was only $1.1 mill for exploration and $0.4 mill for admin for Q4, FY17 with forecast expenditure for the Sept quarter this year of even less - $400k to complete the exploration and another $200k for admin. During this time, AVZ's SP rose to 12-15c, up four or five times from the date of the capital raising. Once AVZ had 'runs on the board' it announced its more serious exploration and reserve proving program for $15 mill at a much higher CR price.

BSM doesn't need much for early drilling at Millies. If we get confirmation from several drill cores of extraordinarily rich lithium grades, then our price will rocket and that will be the time to seek extra cash - not now. The $1 million extra raising was inappropriate, in my opinion, and we can do something about - that's what we are doing now - letting directors know how we feel.